UK: Consortium Fundamentals

Last Updated: 26 March 2012
Article by Jonathan Brinsden

Jonathan Brinsden looks at the changing public service delivery landscape and considerations which charities should have in mind when entering into consortium arrangements.

Many organisations are understandably nervous about the changing public service delivery landscape. Government funding through grants and service level agreements is reducing, and the scope to access funding is often through public service contracts awarded through competitive open tenders. The new ethos is also increasingly provider agnostic, meaning it does not matter who the service provider is: the focus is on impact and outcomes.

Charities are required to react to this challenging environment and consider what they can do differently to ensure that they can continue to meet the needs of their service users.

The contracts available may be larger and more complex than many civil society organisations can realistically win and deliver, unless they join forces and collaborate to compete for those contracts together. Fellow collaborators could be other civil society organisations, public and private sector organisations - or a mixture. Charities often provide something different, valuable and appealing to the consortium table which has given rise to the practice of using charities as 'bid candy'.

In these briefings we will look at different aspects of what charities should consider when entering into these arrangements, starting this week with the fundamental of consortium working.

Fundamentals of Consortium Working

Charities have limited capacity to take a commercial view and the reference points below we suggest should underpin any decision to engage in a consortium arrangement:

Strategy and objects; participating in a proposed consortium should be within your strategy and objects. Partners' objects need not necessarily mirror each other but charity participants must be able to justify that their objects will be advanced by working in a consortium.

Powers; does your constitution empower you to proceed? Some constitutions provide only limited powers or may even contain an express prohibition on subsidising public funds (which may be problematic in the context of delivering public services on a payment by results model). If unsure, advice should be sought on powers and prohibitions and it may be necessary to approach the Charity Commission for authority to amend the constitution.

Appropriate use of funds; what is the cost to you of collaborating in the manner proposed, (including time and other resources beyond simply cash), is that cost reasonable in relation to the extent that your objects will be served by entering this particular consortium.

Private benefit; is anyone going to derive any private benefit from the consortium and to what extent - it must only be incidental.

Trustee duty of care; a trustee has a duty of care towards his charity - to exercise care and skill, with regard to any special knowledge or experience he has.

Trustee duty of prudence; trustees also have a duty to act prudently in relation to their charity's affairs. This means careful use of charity assets, keeping the charity solvent and not putting anything at undue risk.

Independence; don't allow your organisation's independence to be compromised. Almost any form of consortium working carries risk. Take decisions on the basis of what's in the best interests of your organisation and resist pressure from collaborators.

A charity seeking to engage in any kind of consortium working should find out about the others in the consortium and conduct some due diligence. The thoroughness, depth and cost of the due diligence exercise will depend on the risks associated with the project and the amount of money involved. The higher the stakes, the more forensic the due diligence must be.

Broadly, the due diligence should examine the following areas:

Strategic; what is the prospective partner aiming to achieve by virtue of the collaboration.

Assets; how are the other partners funded; what do they own?

Legal; obtain copies of governing documents; are there relevant assets you're not clear about on which legal advice is required - staff or land, any permanent endowment assets.

Financial; review annual accounts - not just the most recent ones; is the organisation financially sustainable; what are the organisation's internal financial controls.

The due diligence exercise is of course part of the risk management process. It's ongoing risks should be assessed at the outset, when a collaboration is first mooted, and then monitored or re-assessed throughout the duration of the consortium initiative. Risks may include:

  • assets may be at risk;
  • with a public service contract, your organisation may not achieve full funding;
  • with a payment by results model, what happens if those results are not achieved and therefore no payment is made;
  • contractual risks;
  • work separate from the joint work may suffer as staff and resources are otherwise committed;
  • mission creep;
  • your organisation's reputation may suffer by association with its partners.

On consortium working it is always important to keep in mind the following:

  • Forming and developing a consortium takes time and money - especially if it is done properly, addressing the fundamentals, the due diligence and the risk assessments. Timescales for tenders are often short;
  • Operating in consortia may be complex and time-consuming, in terms of monitoring,
  • co-ordinating activities, relationships etc. (True of any partnership);
  • Depending on the structure of the consortium, if parties have different roles, there may be an apparently unequal relationship between them, which may
    prove problematic.

In our next issue we will look at the types of legal model most commonly used in consortium working and the advantages and challenges associated with each form.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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